Immigration, residence and work permit issues

UK citizens needs residence permit in order to live and reside in Denmark. In 2020 UK citizens do not need af work permit. From 1. January 2021 the rules for residence and work permits are not known.

Few years ago, Denmark has approved double citizenship. If an individual has both UK and Danish citizen ship residence and work permits are not to be obtained, even after 1. January 2021.

The residence permit should be obtained before arriving in Denmark. It can be obtained in the Embassy of Denmark in London or at the Danish immigration authorities in Copenhagen.

A UK citizen to relocate to Denmark also needs a personal identification number (so called CPR number). It is recommended that this number is obtained in the UK before entering Denmark by submitting a special UK tax form 02.063.

 

Taxation of individuals relocating to Denmark

When you relocate to Denmark you will typically be tax resident at arriving in Denmark. The income year is the calendar year but in the year of arrival you will be tax liable from arrival to 31. December.

Special rules apply in the year of arrival and departure when the tax residency is less than 365 days in the calendar year since a whole-year-income is the basis for the Danish income taxation.

Spouses not arriving in Denmark on the same date will be taxed for an individually determined tax period.

UK citizens could still be tax resident in the UK due to e.g. still having an abode in the UK. This leads very often to UK citizens being tax residents in both countries at the same time. The double taxation agreement (DTA) between the UK and Denmark has a special provision agreed to handle this issue and the DTA determines that one of the states has the world wide taxation right and that the other is the give up the world wide taxation and thus only is entitled to tax income only from certain sources in the country.

Tax residents in Denmark are taxed on salary income, business profits, pension income and other personal income under the regular progressive income system with tax rates from approx. 38 % to 55 %.

Salaried employees should always consider whether an agreed pension scheme with the employer should be set up as a tax favoured pension scheme (§19) or as a non-tax favoured pension scheme (§53A).

The tax basis is the worldwide income including both Danish and foreign source income.

 

 

Some pension income received from a UK source can under certain conditions be claimed only taxable in the UK. This is the case for UK state pensions and UK social security pension. Other pensions such as employer run pensions and private run pensions are normally taxes in both UK and Denmark. This is always to be investigated.

Rental income from a UK source is taxable both in the UK and Denmark with credit in the Danish income tax liability for paid UK income taxes. It is important to understand that even if an income is taxed in the UK under the DTA it might also be taxable in Denmark under the DTA (thus paying the difference between the Danish and UK income tax in Denmark).

Key employees and researchers can under certain conditions be taxed for up to 7 years under the 32,84 % flat rate expat taxation on salary income.

Municipality taxes being part of the progressive taxation are varying approx. 6 % from the cheapest to the most expensive municipality tax.

A special church tax of typically 1 % can be avoided when claiming this.

Positive capital income is taxed from 27-42 %. Negative capital income (e.g. interest expenses) has a tax reducing value of approx. 30 % but up to 42 % if a positive capital income is reduced by negative capital income but still remains a net positive capital income.

 

Net wealth tax

Denmark has no general net wealth taxation.

However, a special deemed rental tax on real properties for living purposes incl. both whole year living and summer time living houses are imposed with 1 % of the public assessed value up to 3,040,000 DKK and with 3 % of an exceeding amount. Special tax basis regulations are available for non-Danish real properties.

 

Corporate taxation

The Danish corporate tax rate is 22 % of the net taxable profit of a limited liability company.

When doing business in Denmark setting up of a limited liability company either an Aktieselskab (A/S) or as an Anpartselskab (ApS) should always be considered.

 

Social security system in Denmark

The Danish social security system is characterized by a comprehensive health coverage and a strong disease treatment. It also includes public pension rights which can be transferred to the UK when relocating out of Denmark.

All Danish tax residents with an official Danish address are covered by the social security system.  Also, if they do not directly pay social contributions to the system.

The Danish social contributions are relatively small even though the comprehensive coverage. Typically, an employer pays approx. 1-2.5 % of the salary to the social system and the employee approx. 1-1.5 %. The social security costs are not financed by the social security contribution but by the income taxes. The result of this implies relatively high income tax rates and relative small social security contribution in Denmark compared with most other European countries.

 

If you need professional advice and assistance on taxation at relocation to Denmark, please contact us at info@inwema.dk or on phone +45 31 69 3169. We are experienced and fully updated on the relevant tax issues.